BRIGHTSPHERE INVESTMENT GROUP PLC, 10-Q filed on 8/9/2018
Quarterly Report
v3.10.0.1
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2018
Aug. 03, 2018
Document and Entity Information    
Entity Registrant Name BrightSphere Investment Group plc  
Entity Central Index Key 0001611702  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Document Type 10-Q  
Document Period End Date Jun. 30, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q2  
Amendment Flag false  
Entity Common Stock, Shares Outstanding   107,274,747
v3.10.0.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Millions
Jun. 30, 2018
Dec. 31, 2017
Assets    
Investments (includes balances reported at fair value of $203.7 and $182.6) $ 305.9 $ 381.1
Investments, at fair value 304.0 319.3
Total assets 1,496.2 1,491.7
Liabilities and shareholders’ equity    
Total liabilities 1,341.1 1,320.4
Commitments and contingencies
Equity:    
Total equity and redeemable non-controlling interests in consolidated Funds 155.1 171.3
Total liabilities and equity 1,496.2 1,491.7
Consolidated Entity Excluding Consolidated Funds    
Assets    
Cash and cash equivalents 234.7 186.3
Investment advisory fees receivable 198.6 208.3
Income taxes receivable 0.0 30.0
Fixed assets, net 42.9 41.7
Investments (includes balances reported at fair value of $203.7 and $182.6) 205.6 244.4
Acquired intangibles, net 75.0 78.3
Goodwill 274.6 274.6
Other assets 55.0 33.6
Deferred tax assets 260.3 240.6
Liabilities and shareholders’ equity    
Accounts payable and accrued expenses 47.8 54.9
Accrued incentive compensation 136.0 186.1
Due to OM plc 49.1 59.1
Other compensation liabilities 574.3 479.0
Accrued income taxes 102.7 96.2
Non-recourse borrowings 15.0 33.5
Third party borrowings 393.0 392.8
Other liabilities 7.6 8.3
Equity:    
Ordinary shares (nominal value $0.001; 108,890,084 and 109,720,358 shares, respectively, issued) 0.1 0.1
Shareholders’ equity 110.7 96.9
Accumulated other comprehensive loss (21.2) (21.6)
Non-controlling interests 1.4 1.3
Consolidated Funds    
Assets    
Other assets 2.3 3.1
Cash and cash equivalents, restricted 46.9 14.1
Investments, at fair value 100.3 136.7
Liabilities and shareholders’ equity    
Accounts payable and accrued expenses 14.3 2.5
Other liabilities 0.8 0.1
Securities sold, not yet purchased, at fair value 0.5 7.9
Redeemable non-controlling interests in consolidated Funds 6.0 44.0
Equity:    
Non-controlling interests $ 58.1 $ 50.6
v3.10.0.1
Condensed Consolidated Balance Sheets (Parenthetical) - Consolidated Entity Excluding Consolidated Funds - USD ($)
$ in Millions
Jun. 30, 2018
Dec. 31, 2017
Asset fair value $ 203.7 $ 182.6
Ordinary shares, nominal value (in dollars per share) $ 0.001 $ 0.001
Ordinary shares, issued (in shares) 108,890,084 109,720,358
v3.10.0.1
Condensed Consolidated Statements of Operations - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Revenue:        
Revenue $ 226.4 $ 206.7 $ 471.4 $ 402.4
Total revenue 233.9 218.8 483.6 415.0
Operating expenses:        
Total operating expenses 218.6 205.9 442.7 378.6
Operating income 15.3 12.9 40.9 36.4
Non-operating income and (expense):        
Total non-operating income (loss) (9.2) 1.7 48.7 6.2
Income from continuing operations before taxes 6.1 14.6 89.6 42.6
Income tax expense 3.6 1.0 32.3 6.6
Income from continuing operations 2.5 13.6 57.3 36.0
Gain (loss) on disposal of discontinued operations, net of tax 0.0 0.0 0.0 (0.1)
Net income 2.5 13.6 57.3 35.9
Net income attributable to controlling interests $ 2.1 $ 12.9 $ 59.4 $ 34.3
Earnings per share (basic) attributable to controlling interests (in dollars per share) $ 0.02 $ 0.12 $ 0.54 $ 0.30
Earnings per share (diluted) attributable to controlling interests (in dollars per share) 0.02 0.11 0.54 0.30
Continuing operations earnings per share (basic) attributable to controlling interests (in dollars per share) 0.02 0.12 0.54 0.30
Continuing operations earnings per share (diluted) attributable to controlling interests (in dollars per share) $ 0.02 $ 0.11 $ 0.54 $ 0.30
Weighted average ordinary shares outstanding (in shares) 108,445,541 111,342,172 108,918,328 112,404,797
Weighted average diluted ordinary shares outstanding (in shares) 108,621,121 111,845,019 109,104,247 113,094,849
Consolidated Entity Excluding Consolidated Funds        
Revenue:        
Other revenue $ 3.3 $ 0.4 $ 5.8 $ 0.5
Operating expenses:        
Compensation and benefits 183.4 173.4 372.6 316.2
General and administrative expense 29.8 27.7 59.3 53.3
Amortization of acquired intangibles 1.7 1.7 3.3 3.3
Depreciation and other amortization 3.5 2.8 6.9 5.3
Non-operating income and (expense):        
Investment income (loss) (0.4) 5.0 65.7 11.1
Interest income 0.6 0.3 1.1 0.4
Interest expense (6.1) (5.9) (12.4) (11.8)
Gain (loss) on disposal of discontinued operations, net of tax     0.0 (0.1)
Consolidated Funds        
Revenue:        
Total revenue 1.2 0.5 1.4 0.7
Operating expenses:        
Total operating expenses 0.2 0.3 0.6 0.5
Non-operating income and (expense):        
Net consolidated Funds’ investment gain (loss) (3.3) 2.3 (5.7) 6.5
Net income (loss) attributable to non-controlling interests in consolidated Funds 0.4 0.7 (2.1) 1.6
Management fees | Consolidated Entity Excluding Consolidated Funds        
Revenue:        
Revenue 226.4 206.7 471.4 402.4
Performance fees | Consolidated Entity Excluding Consolidated Funds        
Revenue:        
Revenue $ 3.0 $ 11.2 $ 5.0 $ 11.4
v3.10.0.1
Condensed Consolidated Statements of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Net income $ 2.5 $ 13.6 $ 57.3 $ 35.9
Other comprehensive income (loss):        
Valuation and amortization related to derivative securities, net of tax 0.6 0.5 1.2 0.7
Foreign currency translation adjustment (1.6) 0.9 (0.8) 1.7
Total other comprehensive income (loss) (1.0) 1.4 0.4 2.4
Total comprehensive income attributable to controlling interests 1.1 14.3 59.8 36.7
Consolidated Funds        
Other comprehensive income (loss):        
Comprehensive income (loss) attributable to non-controlling interests in consolidated Funds $ 0.4 $ 0.7 $ (2.1) $ 1.6
v3.10.0.1
Condensed Consolidated Statements of Changes in Shareholders' Equity - USD ($)
shares in Millions, $ in Millions
Total
Consolidated Funds
Ordinary shares
Consolidated Entity Excluding Consolidated Funds
Shareholders’ equity
Consolidated Entity Excluding Consolidated Funds
Accumulated other comprehensive income (loss)
Consolidated Entity Excluding Consolidated Funds
Total shareholders’ equity
Consolidated Entity Excluding Consolidated Funds
Non- controlling interests
Consolidated Entity Excluding Consolidated Funds
Non- controlling interests
Consolidated Funds
Beginning balance (in shares) at Dec. 31, 2016     114.1          
Beginning balance at Dec. 31, 2016 $ 165.0   $ 0.1 $ 190.2 $ (26.3) $ 164.0 $ 1.0 $ 0.0
Increase (Decrease) in Stockholders' Equity                
Issuance of ordinary shares (in shares)     0.6          
Repurchase of ordinary shares (in shares)     (5.0)          
Repurchase of ordinary shares (73.1)     (73.1)   (73.1)    
Capital contributions (redemptions) (0.5)     (0.5)   (0.5)    
Equity-based compensation 10.4     10.4   10.4    
Foreign currency translation adjustment 1.7       1.7 1.7    
Valuation and amortization related to derivative securities, net of tax 0.7       0.7 0.7    
Business acquisition 0.1           0.1  
Dividends to shareholders (12.3)     (12.3)   (12.3)    
Dividends to related parties (6.9)     (6.9)   (6.9)    
Net income (loss) 34.3     34.3   34.3    
Ending balance (in shares) at Jun. 30, 2017     109.7          
Ending balance at Jun. 30, 2017 119.4   $ 0.1 142.1 (23.9) 118.3 1.1 0.0
Beginning balance at Dec. 31, 2016   $ 5.5            
Increase (Decrease) in redeemable non-controlling interest in consolidated Funds                
Capital contributions (redemptions)   3.9            
Net income (loss)   1.6            
Ending balance at Jun. 30, 2017   11.0            
Beginning balance at Dec. 31, 2016 170.5              
Increase (Decrease) in total equity and redeemable non-controlling interest in consolidated Funds                
Issuance of ordinary shares 0.0              
Repurchase of ordinary shares (73.1)              
Capital contributions (redemptions) 3.4              
Equity-based compensation 10.4              
Foreign currency translation adjustment 1.7              
Amortization related to derivative securities, net of tax 0.7              
Net consolidation (de-consolidation) of Funds 0.0              
Dividends to shareholders (12.3)              
Dividends to related parties (6.9)              
Net income 35.9              
Ending balance at Jun. 30, 2017 130.4              
Beginning balance (in shares) at Dec. 31, 2017     109.7          
Beginning balance at Dec. 31, 2017 127.3   $ 0.1 96.9 (21.6) 75.4 1.3 50.6
Increase (Decrease) in Stockholders' Equity                
Issuance of ordinary shares (in shares)     1.0          
Repurchase of ordinary shares (in shares)     (1.8)          
Repurchase of ordinary shares (27.4)     (27.4)   (27.4)    
Capital contributions (redemptions) 9.2     (0.1)   (0.1)   9.3
Equity-based compensation 2.9     2.9   2.9    
Foreign currency translation adjustment (0.8)       (0.8) (0.8)    
Valuation and amortization related to derivative securities, net of tax 1.2       1.2 1.2    
Business acquisition 0.1           0.1  
Dividends to shareholders (21.0)     (21.0)   (21.0)    
Net income (loss) 57.6     59.4   59.4   (1.8)
Ending balance (in shares) at Jun. 30, 2018     108.9          
Ending balance at Jun. 30, 2018 149.1   $ 0.1 $ 110.7 $ (21.2) $ 89.6 $ 1.4 $ 58.1
Beginning balance at Dec. 31, 2017   44.0            
Increase (Decrease) in redeemable non-controlling interest in consolidated Funds                
Capital contributions (redemptions)   3.8            
Net income (loss)   (0.3)            
Net consolidation (de-consolidation) of Funds   (41.5)            
Ending balance at Jun. 30, 2018   $ 6.0            
Beginning balance at Dec. 31, 2017 171.3              
Increase (Decrease) in total equity and redeemable non-controlling interest in consolidated Funds                
Issuance of ordinary shares 0.0              
Repurchase of ordinary shares (27.4)              
Capital contributions (redemptions) 13.0              
Equity-based compensation 2.9              
Foreign currency translation adjustment (0.8)              
Amortization related to derivative securities, net of tax 1.2              
Net consolidation (de-consolidation) of Funds (41.5)              
Dividends to shareholders (21.0)              
Net income 57.3              
Ending balance at Jun. 30, 2018 $ 155.1              
v3.10.0.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Millions
6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Cash flows from operating activities:    
Net income $ 57.3 $ 35.9
Adjustments to reconcile net income to net cash provided by (used in) operating activities from continuing operations:    
(Gain) loss on disposal of discontinued operations, excluding consolidated Funds 0.0 0.1
Changes in operating assets and liabilities (excluding discontinued operations):    
Net cash flows from operating activities of continuing operations 83.9 60.1
Net cash flows from operating activities of discontinued operations 0.0 0.0
Total net cash flows from operating activities 83.9 60.1
Cash flows from investing activities:    
Net cash flows from investing activities of continuing operations 56.5 44.3
Net cash flows from investing activities of discontinued operations 0.0 0.0
Total net cash flows from investing activities 56.5 44.3
Cash flows from financing activities:    
Proceeds from third party borrowings 0.0 15.0
Net cash flows from financing activities of continuing operations (59.2) (123.4)
Net cash flows from financing activities of discontinued operations 0.0 0.0
Total net cash flows from financing activities (59.2) (123.4)
Effect of foreign exchange rate changes on cash and cash equivalents 0.0 0.0
Net increase (decrease) in cash and cash equivalents 81.2 (19.0)
Cash and cash equivalents at beginning of period 200.4 102.3
Cash and cash equivalents at end of period (including cash at consolidated Funds classified as restricted) 281.6 83.3
Supplemental disclosure of cash flow information:    
Interest paid (excluding consolidated Funds) 11.4 13.2
Income taxes paid 15.5 20.1
Supplemental disclosure of non-cash investing and financing transactions:    
De-consolidation of Funds (41.5) 0.0
Consolidated Entity Excluding Consolidated Funds    
Adjustments to reconcile net income to net cash provided by (used in) operating activities from continuing operations:    
(Gain) loss on disposal of discontinued operations, excluding consolidated Funds 0.0 0.1
Amortization of acquired intangibles 3.3 3.3
Depreciation and other amortization 6.9 5.3
Amortization of debt-related costs 1.6 1.5
Amortization and revaluation of non-cash compensation awards 109.0 86.4
Net earnings from Affiliates accounted for using the equity method (1.3) (5.5)
Distributions received from equity method Affiliates 1.0 1.0
Gain on sale of investment in Affiliate (65.7) 0.0
Deferred income taxes (20.8) (8.9)
(Gains) losses on other investments 2.7 (16.1)
Changes in operating assets and liabilities (excluding discontinued operations):    
(Increase) decrease in investment advisory fees receivable and amounts due from related parties 9.9 (23.9)
(Increase) decrease in other receivables, prepayments, deposits and other assets 27.0 1.9
Increase (decrease) in accrued incentive compensation, amounts due to related parties and other liabilities (62.2) (10.6)
Increase (decrease) in accounts payable, accrued expenses and accrued income taxes (0.2) (8.1)
Net cash flows from operating activities of continuing operations 70.6 60.7
Cash flows from investing activities:    
Purchase of fixed assets (8.0) (6.7)
Proceeds from sale of investment in Affiliate 100.0 0.0
Business acquisitions, net of cash acquired 0.0 (1.9)
Purchase of investment securities (72.3) (8.2)
Sale of investment securities 30.3 64.8
Cash flows from financing activities:    
Proceeds from non-recourse borrowings 15.0 0.0
Repayment of non-recourse borrowings (33.5) 0.0
Payment to OM plc for deferred tax arrangement 0.0 (45.5)
Payment to OM plc for co-investment redemptions (0.6) (4.1)
Dividends paid to shareholders (16.1) (12.3)
Dividends paid to related parties (5.2) (6.9)
Payment to OM plc for promissory notes (4.5) 0.0
Repurchases of ordinary shares (27.5) (73.4)
Consolidated Funds    
Cash flows from operating activities:    
Less: Net (income) loss attributable to non-controlling interests in consolidated Funds 2.1 (1.6)
Adjustments to reconcile net income to net cash provided by (used in) operating activities from continuing operations:    
(Gains) losses on other investments 2.9 (1.4)
Changes in operating assets and liabilities (excluding discontinued operations):    
(Increase) decrease in receivables and other assets (1.3) (0.6)
Increase (decrease) in accounts payable and other liabilities 13.8 (0.2)
Net cash flows from operating activities of continuing operations 13.3 (0.6)
Cash flows from investing activities:    
Purchase of investment securities (72.1) (30.8)
Redemption of investments 78.6 27.1
Cash flows from financing activities:    
Non-controlling interest capital raised 13.2 3.8
Supplemental disclosure of non-cash investing and financing transactions:    
Payable for securities purchased by a consolidated Fund $ 13.2 $ 0.0
v3.10.0.1
Organization and Description of the Business
6 Months Ended
Jun. 30, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization and Description of the Business
BrightSphere Investment Group plc (“BrightSphere,” “BSIG” or the “Company”), through its subsidiaries, is a global asset management business with interests in a diverse group of boutique investment management firms (the “Affiliates”) individually headquartered in the United States. The Company provides investment management services globally to predominantly institutional investors, in asset classes that include U.S. and global equities, fixed income, alternative assets, timber, and secondary Funds focused in real estate and private equity. Fees for services are largely asset-based and, as a result, the Company’s revenue fluctuates based on the performance of financial markets and investors’ asset flows in and out of the Company’s products.
The Company’s Affiliates are organized as limited liability companies. The Company generally utilizes a profit-sharing model in structuring its compensation and ownership arrangements with its Affiliates. The Affiliates’ variable compensation is generally based on each firm’s profitability. BSIG and Affiliate key employees share in profits after variable compensation according to their respective ownership interests. The profit-sharing model results in alignment of BSIG and Affiliate key employee economic interests, which is critical to the Company’s talent management strategy and long-term growth of the business. The Company operates in one reportable segment.
Prior to 2014, the Company was a wholly-owned subsidiary of Old Mutual plc (“OM plc”), an international long-term savings, protection and investment group, listed on the London Stock Exchange. On October 15, 2014, the Company completed the initial public offering (the “Offering”) by OM plc pursuant to the Securities Act of 1933, as amended. Additionally, between the Offering and December 31, 2017, the Company and/or OM plc completed a series of transactions in the Company’s shares to reduce OM plc’s holdings in the Company to under 0.1% of the Company’s outstanding ordinary shares. Included in these transactions was a two-step transaction announced on March 25, 2017 for a sale by OM plc of a 24.95% shareholding in the Company to HNA Capital US (“HNA”). At June 30, 2018, HNA owned 25.1% of the Company’s outstanding ordinary shares.
On March 2, 2018, the Company announced the change of its name from OM Asset Management plc to BrightSphere Investment Group plc.
v3.10.0.1
Basis of Presentation and Significant Accounting Policies
6 Months Ended
Jun. 30, 2018
Accounting Policies [Abstract]  
Basis of Presentation and Significant Accounting Policies
The Company’s significant accounting policies are as follows:
Basis of presentation
These unaudited Condensed Consolidated Financial Statements reflect the historical balance sheets, statements of operations and of comprehensive income, statements of changes in shareholders’ equity and statements of cash flows of the Company.
The Condensed Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). All dollar amounts, except per-share data in the text and tables herein, are stated in millions unless otherwise indicated. Material intercompany balances and transactions among the Company and its consolidated Affiliates are eliminated in consolidation.
These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto for the year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on February 28, 2018. The Company’s significant accounting policies, which have been consistently applied, are summarized in those Financial Statements.
Revenue recognition
Revenue from contracts with customers
In the first quarter of 2018, the Company adopted the provisions of Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers,” (“ASC 606”), using the modified retrospective method applied to all contracts. Under ASC 606, the Company recognizes revenue when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. The Company applied the five step method outlined in the ASC 606 to all revenue streams.
The Company’s consolidated revenue recorded pursuant to ASC 606 is recognized over time and primarily consists of management fees, performance fees and certain reimbursement of costs from funds. Management fees are typically billed monthly or quarterly by Affiliates for managing the assets of clients.
Management fees are recognized monthly as services are rendered and are primarily based upon a percentage of the market value of client assets managed. Affiliates that manage tangible property may also earn transaction fees at the time the underlying property is bought and sold. Any fees collected in advance are deferred and recognized as income over the period earned. Dividend income received is recorded on the ex-dividend date.
Performance fees are generally assessed as a percentage of the investment performance realized on a client’s account. Additionally, separate accounts or other products which primarily earn management fees are potentially subject to performance adjustment up or down based on investment performance versus benchmark. Performance fees, including those that are subject to clawback are recognized when they (i) become billable to customers (based on contractual terms of agreements), (ii) are not subject to contingent repayment and (iii) when collection is reasonably assured.
For each one of its contracts with customers, the Company identifies one or more performance obligations within the contract and then, for each performance obligation, determines if it is a principal (where the nature of its promise is to provide a specified good or service itself) or an agent (where the nature of its promise is to arrange for a good or service to be provided by another party). In instances where a customer reimburses the Company for a cost paid on the customer’s behalf, if the Company is acting as a principal, the reimbursement is recorded on a gross basis and if the Company is acting as an agent, the reimbursement is recorded on a net basis.
Certain Funds reimburse the Company’s Affiliates for certain expenses where the Affiliate is acting as a principal, primarily for compensation expense for field office personnel at several Timber Funds (as defined below). Revenue from expense reimbursement is accrued at cost as the corresponding reimbursable expenses are incurred and is recorded in other income in the Company’s Condensed Consolidated Statements of Operations.
Revenue from other sources
Other income and revenues also includes interest income on cash and cash equivalents of Funds and revenue from marketing, distribution and consulting services.
The revenue of consolidated Funds that invest in Timber (the “Timber Funds”) is recognized from log and fiber sales upon delivery to the customer. The Company is typically responsible for all logging and hauling costs. However, under pay-as-cut timber contracts, title and risk of loss from stumpage sales transfer to the buyer as the trees are cut. Revenue is recognized as timber is harvested. The buyer is typically responsible for all logging and hauling costs.
Valuation of investments held at cost
In the first quarter of 2018, the Company adopted the provisions of Accounting Standards Update (“ASU”) 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” (“ASU 2016-01”). In adopting ASU 2016-01, the Company changed the methodology in how it records investments in unconsolidated Timber Funds, from historical cost less depletion to fair value, based upon the Company’s proportionate share of the underlying net asset value.
Compensation arrangements
The Company operates short term variable compensation arrangements where generally, a percentage of each Affiliate’s annual pre-variable compensation earnings, as defined in each arrangement, is allocated to a “pool” of each respective Affiliate’s key employees, and subsequently distributed to individuals subject to recommendation and approval of a remuneration committee comprised of both the Company’s and each respective Affiliate’s management. Variable compensation expense is accrued and recognized in the Consolidated Statements of Operations as services are provided by individual employees.
The Company operates longer term profit-interest plans whereby certain Affiliate key employees are granted (or have a right to purchase) awards representing a profits interest in their respective Affiliate, as distinct from an equity interest due to the lack of pari passu voting rights. Under these plans, the Company may award a portion of the aforementioned variable compensation arrangement through issuance of a profits interest in the Affiliate. The awards generally have a three- to five-year vesting period from the grant date, and the service period begins at the commencement of the financial period to which the variable compensation relates. Under these plans, Affiliate key employees are eligible to share in the profits of their respective Affiliates based on their respective percentage interest held.
In addition, under certain circumstances, Affiliate key employees are eligible to receive a series of repurchase payments upon exiting the plans based on a multiple of the last twelve months profits of their respective Affiliate, as defined. Profits allocated and movements in the potential repurchase value, determined based on a fixed multiple times trailing twelve month profits, as defined, are recognized as compensation expense. Profit interests compensation liabilities are re-measured at each reporting date at the current trailing twelve month earnings multiple, with movements treated as compensation expense in the Company’s Condensed Consolidated Statements of Operations.
Share-based compensation plans
The Company recognizes the cost of all share-based payments to directors, senior management and employees, including grants of restricted stock, as compensation expense in the Condensed Consolidated Statements of Operations over the respective vesting periods.
Awards made under the Company’s equity plans are accounted for as equity settled, and the grant date fair value is recognized as compensation expense over the requisite service period, with a corresponding contribution to capital recorded. Valuation of restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) is determined based on the Company’s closing share price as quoted on the New York Stock Exchange on the measurement date. For performance-based awards, a Monte-Carlo simulation model is used to determine the fair value. Key inputs for the model include: assumed reinvestment of dividends, risk-free interest rate and expected volatility. All excess tax benefits and deficiencies on share-based payment awards are recognized as income tax expense or benefit in the Condensed Consolidated Statements of Operations. In addition, the tax effects of exercised or vested awards are treated as discrete items in the reporting period in which they occur and excess tax benefits or deficiencies are classified with other income tax cash flows as an operating activity in the Condensed Consolidated Statement of Cash Flows. The Company recognizes forfeitures as they occur.
Awards of equity made to Affiliate key employees are accounted for as cash settled, with the fair value recognized as compensation expense over the requisite service period, with a corresponding liability carried within other compensation liabilities on the Condensed Consolidated Balance Sheet until the award is settled by the Company. The fair value of the liability is based on the expected cash to be paid. The liability is revalued at each reporting period, with any movements recorded within compensation expense.
Consolidation
Affiliates
The Company evaluates each of its Affiliates and other operating entities to determine the appropriate method of accounting. Generally, majority-owned entities or otherwise controlled investments in which the Company holds a controlling financial interest as the principal shareholder, managing member, or general partner are consolidated.
Funds
In the normal course of business, the Company’s Affiliates sponsor and manage certain investment vehicles (the “Funds”). The Company assesses consolidation requirements with respect to its Funds pursuant to ASC Topic 810, “Consolidation,” (“ASC 810”).
In evaluating whether or not a legal entity must be consolidated, the Company determines if such entity is a variable interest entity (“VIE”) or a voting interest entity (“VOE”). A VOE is considered an entity in which (i) the total equity investment at risk is sufficient to enable the entity to finance its activities independently and (ii) the equity holders at risk have the obligation to absorb losses, the right to receive residual returns, and the right to direct the activities of the entity that most significantly impact the entity’s economic performance. A VIE is an entity that lacks one or more of the characteristics of a VOE. Assessing whether an entity is a VIE or VOE involves judgment and analysis. Factors considered in this assessment include the entity’s legal organization, the entity’s capital structure and equity ownership and any related party or de facto agent implications of the Company’s involvement with the entity. Investments that are determined to be VIEs are consolidated if the Company or a consolidated Affiliate is the primary beneficiary of the investment. VOEs are typically consolidated if the Company holds the majority voting interest or otherwise controls the entity.
In evaluating whether the Company is the primary beneficiary, the Company evaluates its economic interests in the entity held either directly by the Company or indirectly through related parties. The primary beneficiary of the VIE is defined as the variable interest holder that has a controlling financial interest. A controlling financial interest is defined as (i) the power to direct the activities of the VIE that most significantly impacts its economic performance and (ii) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. If no single party satisfies both criteria, but the Company and its related parties satisfy the criteria on a combined basis, then the primary beneficiary is the entity out of the related party group that is most closely associated to the VIE. The consolidation analysis can generally be performed qualitatively, however, if it is not readily apparent that the Company is not the primary beneficiary, a quantitative analysis may also be performed. The Company generally is not the primary beneficiary of Fund VIEs created to manage assets for clients unless the Company’s ownership interest in the fund, including interests of related parties, is substantial.
The Company consolidates VOEs when it has control over significant operating, financial and investing decisions of the entity or holds the majority voting interest.
Upon the occurrence of certain events (such as contributions and redemptions, either by the Company, its Affiliates, or third parties, or amendments to the governing documents of the Company’s investees or sponsored Funds) management reviews and reconsiders its previous conclusion regarding the status of an entity as a VIE or a VOE. Additionally, management continually reconsiders whether the Company is deemed to be a VIE’s primary beneficiary who consolidates such entity.
Goodwill and intangible assets
In the second quarter of 2018, the Company adopted ASU 2017-04, “Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). Under ASU 2017-04, a goodwill impairment will now be calculated as the amount by which a reporting unit’s carrying value exceeds its fair value. Pursuant to the standard, the Company will apply ASU 2017-04 prospectively as future goodwill impairment tests are performed.
Use of Estimates
The preparation of these Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ significantly from those estimates.
v3.10.0.1
Investments
6 Months Ended
Jun. 30, 2018
Investments [Abstract]  
Investments
Investments are comprised of the following as of the dates indicated (in millions):
 
June 30,
2018
 
December 31,
2017
Investments of consolidated Funds held at fair value
$
100.3

 
$
136.7

Other investments held at fair value(1)
101.3

 
87.4

Investments related to long-term incentive compensation plans held at fair value
102.4

 
95.2

Total investments held at fair value
304.0

 
319.3

Equity-accounted investments in Affiliates
1.9

 
1.6

Investments in Affiliates carried at cost

 
53.8

Other investments carried at cost(1)

 
6.4

Total investments per Condensed Consolidated Balance Sheets
$
305.9

 
$
381.1

 
 
(1)
In 2018, the Company transitioned to fair value recognition and presentation and investments formerly carried at cost were reclassified from “other investments carried at cost” to “other investments held at fair value” in this table as of June 30, 2018. Also see Note 2.
At December 31, 2017, $6.4 million of investments made by one of our Affiliates in timber and timberlands were recorded at cost.
In August 2017, the Company executed a non-binding term sheet to sell its stake in Heitman LLC to Heitman’s management for cash consideration totaling $110 million. Pursuant to this term sheet, BSIG entered into a redemption agreement on November 17, 2017 and the Company reclassified its investment in Heitman to a cost method investment. The transaction closed on January 5, 2018. The carrying value of BSIG’s interest in Heitman as of December 31, 2017 was $53.8 million and is included in the “Investments in Affiliates carried at cost” line in the table above. BSIG will retain its co-investment interests in Heitman-managed funds as well as any carried interest associated with these investments.

Investment income (loss) is comprised of the following for the three and six months ended June 30 (in millions):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Investment return on equity-accounted investments in unconsolidated Funds
$

 
$
0.8

 
$

 
$
1.2

Realized and unrealized gains (losses) on other investments held at fair value
(1.1
)
 
1.0

 
(1.3
)
 
2.7

Investment return of held for sale investments

 

 

 
1.7

Total return on BSIG investments
(1.1
)
 
1.8

 
(1.3
)
 
5.6

Investment return on equity-accounted investments in Affiliates
0.7

 
3.2

 
1.3

 
5.5

Investment return of sale of Affiliate carried at cost

 

 
65.7

 

Total investment income (loss) per Condensed Consolidated Statement of Operations
$
(0.4
)
 
$
5.0

 
$
65.7

 
$
11.1

v3.10.0.1
Fair Value Measurements
6 Months Ended
Jun. 30, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurements
The following table summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis at June 30, 2018 (in millions):
 
Quoted prices
in active
markets
(Level I)
 
Significant
other
observable
inputs
(Level II)
 
Significant
unobservable
inputs
(Level III)
 
Uncategorized
 
Total value,
June 30, 2018
Assets of BSIG and consolidated Funds(1)
 
 

 
 

 
 
 
 

Common and preferred stock
$
30.5

 
$

 
$

 
$

 
$
30.5

Short-term investment funds
19.3

 

 

 

 
19.3

Bank loans

 
18.9

 

 

 
18.9

Other investments

 
4.2

 
26.5

 

 
30.7

Derivatives
0.8

 
0.1

 

 

 
0.9

Consolidated Funds total
50.6

 
23.2

 
26.5

 

 
100.3

Investments in separate accounts(2)
39.2

 
2.9

 

 

 
42.1

Investments related to long-term incentive compensation plans(3)
102.4

 

 

 

 
102.4

Investments in unconsolidated Funds(4)

 

 
5.2

 
54.0

 
59.2

BSIG total
141.6

 
2.9

 
5.2

 
54.0

 
203.7

Total fair value assets
$
192.2

 
$
26.1

 
$
31.7

 
$
54.0

 
$
304.0

Liabilities of consolidated Funds(1)
 
 
 
 
 
 
 
 
Derivatives
$
(0.4
)
 
$
(0.1
)
 
$

 
$

 
$
(0.5
)
Consolidated Funds total
(0.4
)
 
(0.1
)
 

 

 
(0.5
)
Total fair value liabilities
$
(0.4
)
 
$
(0.1
)
 
$

 
$

 
$
(0.5
)

The following table summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis at December 31, 2017 (in millions): 
 
Quoted prices
in active
markets
(Level I)
 
Significant
other
observable
inputs
(Level II)
 
Significant
unobservable
inputs
(Level III)
 
Uncategorized
 
Total value December 31, 2017
Assets of BSIG and consolidated Funds(1)
 
 

 
 

 
 

 
 

Common and preferred stock
$
83.8

 
$

 
$

 
$

 
$
83.8

Short-term investment funds
0.5

 

 

 

 
0.5

Other investments
0.4

 

 

 
51.5

 
51.9

Derivatives
0.3

 
0.2

 

 

 
0.5

Consolidated Funds total
85.0

 
0.2

 

 
51.5

 
136.7

Investments in separate accounts(2)
46.1

 

 

 

 
46.1

Investments related to long-term incentive compensation plans(3)
95.2

 

 

 

 
95.2

Investments in unconsolidated Funds(4)

 

 

 
41.3

 
41.3

BSIG total
141.3

 

 

 
41.3

 
182.6

Total fair value assets
$
226.3

 
$
0.2

 
$

 
$
92.8

 
$
319.3

 
Liabilities of consolidated Funds(1)
 
 
 
 
 
 
 
 
Common stock
$
(7.2
)
 
$

 
$

 
$

 
$
(7.2
)
Derivatives
(0.5
)
 
(0.2
)
 

 

 
(0.7
)
Consolidated Funds total
(7.7
)
 
(0.2
)
 

 

 
(7.9
)
Total fair value liabilities
$
(7.7
)
 
$
(0.2
)
 
$

 
$

 
$
(7.9
)
 
 
(1)
Assets and liabilities measured at fair value are comprised of financial investments managed by the Company's Affiliates. $100.3 million in assets and $0.5 million in liabilities at June 30, 2018 and $136.7 million in assets and $7.9 million in liabilities at December 31, 2017 are the result of the consolidation of Funds sponsored by the Company’s Affiliates.
The fair value of investments estimated based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs is classified within Level II. The Company obtains prices from independent pricing services that may utilize broker quotes, but generally the independent pricing services will use various other pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data. The Company has not made adjustments to the prices provided. If the pricing services are only able to (a) obtain a single broker quote or (b) utilize a pricing model, such securities are classified as Level III. If the pricing services are unable to provide prices, the Company attempts to obtain one or more broker quotes directly from a dealer or values such securities at the last bid price obtained. In either case, such securities are classified as Level III. The Company performs due diligence procedures over third party pricing vendors to understand their methodology and controls to support their use in the valuation process to ensure compliance with required accounting disclosures.
Equity securities, including common and preferred stock, short-term investment funds, other investments and derivatives which are traded on a national securities exchange are stated at the last reported sales price on the day of valuation. To the extent these securities are actively traded and valuation adjustments are not applied, they are classified as Level I. These securities that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs obtained by the Company from independent pricing services are classified as Level II. 
Assets of consolidated Funds also include investments in bank loans. Fair value is determined utilizing unadjusted quoted market prices when available. Interests in senior floating-rate loans for which reliable market quotations are readily available are valued at the average mid-point of bid and ask quotations obtained from a third-party pricing service. These assets are classified as Level II.
The Level III amount of $26.5 million at June 30, 2018 represents investments made by a consolidated Fund in timber funds advised by Affiliates. The Company values these investments using net book value and has therefore classified these investments as Level III in the fair value hierarchy. The range of time over which the underlying assets are expected to be liquidated by the investees is approximately one to twelve years from June 30, 2018.
(2)
Investments in separate accounts of $42.1 million at June 30, 2018 consist of approximately 2% of cash equivalents and 98% of equity securities. Investments in separate accounts of $46.1 million at December 31, 2017 consist of approximately 1% of cash equivalents and 99% of equity securities. The Company values these using the published price of the underlying securities (classified as Level I) or quoted price supported by observable inputs as of the measurement date (classified as Level II).
(3)
Investments related to long term compensation plans of $102.4 million and $95.2 million at June 30, 2018 and December 31, 2017, respectively, are investments in publicly registered daily redeemable funds (some managed by Affiliates), which the Company has classified as trading securities and valued using the published price as of the measurement dates. Accordingly, the Company has classified these investments as Level I.
(4)
The uncategorized amounts of $54.0 million and $41.3 million at June 30, 2018 and December 31, 2017, respectively, relate to investments in unconsolidated Funds which consist primarily of investments in Funds advised by Affiliates and are valued using NAV which the Company relies on to determine their fair value as a practical expedient and has therefore not classified these investments in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to amounts presented in the Condensed Consolidated Balance Sheets. These unconsolidated Funds consist primarily of real estate investment Funds, UCITS and other investment vehicles. The NAVs that have been provided by investees have been derived from the fair values of the underlying investments as of the measurement dates.
These investments are subject to longer than monthly or quarterly redemption restrictions, and due to their nature, distributions are received only as cash flows are generated from underlying assets over the life of the Funds. The range of time over which the underlying assets are expected to be liquidated by the investees is approximately one to eight years from June 30, 2018. The valuation process for the underlying real estate investments held by the real estate investment Funds begins with each property or loan being valued by the investment teams. The valuations are then reviewed and approved by the valuation committee, which consists of senior members of the portfolio management, acquisitions, and research teams. For certain properties and loans, the valuation process may also include a valuation by independent appraisers. In connection with this process, changes in fair-value measurements from period to period are evaluated for reasonableness, considering items such as market rents, capitalization and discount rates, and general economic and market conditions. 
Not included in the above is $60.2 million at December 31, 2017 of investments carried at cost, including the Company’s investment in Heitman at December 31, 2017. In January, 2018, the Heitman sale transaction was completed and the Company recognized a pre-tax gain of $65.7 million during the six months ended June 30, 2018.
At January 1, 2018, the Company adopted the provisions of ASU 2016-01, discussed further in Note 2, resulting in a re-categorization of certain unconsolidated investments in Timber Funds from historical cost less depletion to fair value. The Level III amount of $5.2 million at June 30, 2018 relates to investments in Timber Funds advised by Affiliates and is valued by the general partner of those Funds. Determination of estimated fair value involves subjective judgment because the actual fair value can be determined only through negotiation between parties in a sale transaction, and amounts ultimately realized may vary significantly from their fair value presented.
The following table reconciles the opening balances of Level III financial assets to closing balances at the end of the period (in millions):
 
Investments in unconsolidated Funds
 
Consolidated Funds other investments
 
Three Months Ended
June 30, 2018
 
Six Months Ended
June 30, 2018
 
Three Months Ended
June 30, 2018
 
Six Months Ended
June 30, 2018
Level III financial assets
 
 
 
 
 
 
 
At beginning of the period
$
6.3

 
$

 
$

 
$

Transfers into Level III

 

 
26.5

 
26.5

Change in recognition based on adoption of ASU 2016-01

 
6.4

 

 

Total net fair value losses recognized in net income
(1.1
)
 
(1.2
)
 

 

Total Level III financial assets
$
5.2

 
$
5.2

 
$
26.5

 
$
26.5


During the six months ended June 30, 2018, the Company transferred $26.5 million of consolidated Funds other assets into Level III. These investments were not previously classified on the fair value hierarchy. There were no other significant transfers of financial assets or liabilities among Levels I, II or III during the six months ended June 30, 2018.
v3.10.0.1
Variable Interest Entities
6 Months Ended
Jun. 30, 2018
Variable Interest Entities  
Variable Interest Entities
The Company, through its Affiliates, sponsors the formation of various entities considered to be VIEs. These VIEs are primarily Funds managed by Affiliates and are investment vehicles typically owned entirely by third-party investors. Certain Funds may be capitalized with seed capital investments from the Company and may be owned partially by Affiliate key employees and/or individuals that own minority interests in an Affiliate.
The Company’s determination of whether it is the primary beneficiary of a Fund that is a VIE is based in part on an assessment of whether or not the Company and its related parties are exposed to absorb more than an insignificant amount of the risks and rewards of the entity. Typically the Fund’s investors are entitled to substantially all of the economics of these VIEs with the exception of the management fees and performance fees, if any, earned by the Company or any investment the Company has made into the Funds. The Company generally is not the primary beneficiary of Fund VIEs created to manage assets for clients unless the Company’s ownership interest, including interests of related parties, is substantial.
The following table presents the assets and liabilities of Funds that are VIEs and consolidated by the Company (in millions):
 
6/30/2018
 
12/31/2017
Assets
 

 
 

Investments at fair value
$
100.3

 
$
106.7

Other assets of consolidated Funds
49.2

 
16.8

Total Assets
$
149.5

 
$
123.5

Liabilities
 

 
 

Other liabilities of consolidated Funds
$
15.6

 
$
3.3

Total Liabilities
$
15.6

 
$
3.3


"Investments at fair value" consist of investments in timber or securities. To the extent the Company also has consolidated Funds that are not VIEs, the assets and liabilities of those Funds are not included in the table above.
The assets of consolidated VIEs presented in the table above belong to the investors in those Funds, are available for use only by the Fund to which they belong, and are not available for use by the Company to the extent they are held by non-controlling interests. Any debt or liabilities held by consolidated Funds have no recourse to the Company's general credit.
The Company’s involvement with Funds that are VIEs and not consolidated by the Company is generally limited to that of an investment manager and its investment in the unconsolidated VIE, if any. The Company’s investment in any unconsolidated VIE generally represents an insignificant interest of the Fund’s net assets and assets under management, such that the majority of the VIE’s results are attributable to third parties. The Company’s exposure to risk in these entities is generally limited to any capital contribution it has made or is required to make and any earned but uncollected management fees. The Company has not issued any investment performance guarantees to these VIEs or their investors.
The following information pertains to unconsolidated VIEs for which the Company holds a variable interest (in millions):
 
June 30,
2018
 
December 31,
2017
Unconsolidated VIE assets
$
8,545.6

 
$
6,001.1

Unconsolidated VIE liabilities
$
4,497.1

 
$
3,843.7

Equity interests on the Condensed Consolidated Balance Sheet
$
23.3

 
$
54.4

Maximum risk of loss(1)
$
27.8

 
$
58.5

 
 
(1)
Includes equity investments the Company has made or is required to make and any earned but uncollected management and incentive fees. The Company does not record performance or incentive allocations until the respective measurement period has ended.
In addition to the multiple unconsolidated VIE Funds, the Company determined that Heitman LLC, an Affiliate of the Company at December 31, 2017, was a VIE. The Company concluded that it was not the primary beneficiary of Heitman LLC because it did not hold the power to direct its most economically significant activities. The Company aggregated Heitman LLC with the Company’s other unconsolidated VIE Funds due to their similar risk profiles given that the risks and rewards are driven by changes in investment values and the Affiliates’ ability to manage those assets.
On January 5, 2018, the Company closed a transaction to sell its stake in Heitman LLC to Heitman’s management for cash consideration totaling $110 million. At June 30, 2018, the Company no longer has a variable interest in Heitman.
v3.10.0.1
Related Party Transactions
6 Months Ended
Jun. 30, 2018
Related Party Transactions [Abstract]  
Related Party Transactions
OM plc was considered a related party of the Company through November 17, 2017, at which point OM plc sold all but a deminimus amount of the Company’s ordinary shares (see Note 1). OM plc historically provided the Company with various oversight services, including governance. These services have all been transitioned to the Company. Costs related to these services which (i) were directly attributable to the Company, (ii) were charged to the Company by OM plc and (iii) were paid to OM plc by the Company, have been recorded in the Company’s unaudited Condensed Consolidated Financial Statements and were $0.1 million in the three months ended June 30, 2017 and $0.4 million in the six months ended June 30, 2017.
During 2016, the Company and OM plc agreed to amend the Deferred Tax Asset Deed. The initial payment to OM plc under the terms of the Deferred Tax Asset Deed, as amended, of $45.5 million was paid on June 30, 2017, however as a result of the Tax Act, no additional payments have been made pending the continued evaluation of the Tax Act’s impact on the value of the Deferred Tax Asset Deed. The reduction of the corporate tax rate and other provisions of the Tax Act resulted in a decrease to the Deferred Tax Asset Deed of approximately $51.8 million for the year ended December 31, 2017, however there remains a possibility for additional reductions pending continued evaluation of the Tax Act’s impact on the value of the Deferred Tax Asset Deed.

During 2016, the Company and OM plc agreed to amend the Seed Capital Management Agreement. As a result of the amendment, the Company purchased approximately $39.6 million of seed investments from OM plc in September 2016 and the remaining seed capital investments covered by the Seed Capital Management Agreement valued at $63.4 million in July 2017, financed in part by borrowings under the non-recourse seed capital facility (see Note 7) and two promissory notes due and paid in the first quarter of 2018 in the amount of $4.5 million. Amounts owed to OM plc associated with the Co-investment Deed were $7.7 million at June 30, 2018, net of tax. As of June 30, 2018, the Company had recorded $2.1 million for redemptions and estimated taxes due under the Co-investment Deed. Amounts withheld in excess of the future tax liability will be payable to OM plc upon settlement.
During 2016, the Company made a loan to an equity-method Affiliate that was used to make co-investments in Affiliate Funds. Amounts due to the Company in connection with this loan are included in other assets on the Company’s Condensed Consolidated Balance Sheets and were $3.3 million and $3.6 million at June 30, 2018 and at December 31, 2017, respectively.
During the three and six months ended June 30, 2017, the Company paid dividends to OM plc of $2.2 million and $6.9 million, respectively. During the three months ended June 30, 2018 and 2017, the Company paid dividends to HNA of $2.7 million and $1.0 million, respectively. During the six months ended June 30, 2018 and 2017, the Company paid dividends to HNA of $5.2 million and $1.0 million, respectively.
As the Company is a member of a group of related businesses, it is possible that the terms of certain related party transactions are not the same as those that would result from transactions with wholly unrelated parties.
v3.10.0.1
Borrowings and Debt
6 Months Ended
Jun. 30, 2018
Debt Disclosure [Abstract]  
Borrowings and Debt
The Company’s long-term debt facilities at June 30, 2018 were comprised of a revolving credit facility, non-recourse seed capital financing and long-term bonds.
Revolving Credit Facility
On October 15, 2014, the Company entered into a revolving credit facility with Citibank, as administrative agent and issuing bank, and Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated as joint lead arrangers and joint book runners (as amended, the “Credit Facility”). Pursuant to the terms of the Credit Facility, the Company may obtain loans on a revolving credit basis and procure the issuance of letters of credit in an aggregate amount at any time outstanding not in excess of $350 million. The Credit Facility has a maturity date of October 15, 2019. Borrowings under the Credit Facility bear interest, at BSIG’s option, at either the per annum rate equal to (a) the greatest of (i) the prime rate, (ii) the federal funds effective rate plus 0.5% and (iii) the one month Adjusted LIBO Rate plus 1.0%, plus, in each case an additional amount based on its credit rating or (b) the London interbank offered rate for a period, at the Company’s election, equal to one, two, three or six months plus an additional amount ranging from 1.25% to 2.00%, with such additional amount based on its credit rating. In addition, the Company is charged a commitment fee based on the average daily unused portion of the Credit Facility at a per annum rate ranging from 0.20% to 0.50%, with such amount based on the Company’s credit rating.
In July 2016, Moody’s Investor Service, Inc. and Standard & Poor’s each assigned an initial investment-grade rating to the Company’s senior, unsecured long-term indebtedness. As a result of the assignment of the credit ratings, the Company’s interest rate on outstanding borrowings was set at LIBOR + 1.50% and the commitment fee on the unused portion of the revolving credit facility was set at 0.25%. Prior to the assignment of the credit ratings, the Company’s interest rate on outstanding borrowings was based on the Company’s Leverage Ratio and was set at LIBOR + 1.25% and the commitment fee on the unused portion of the revolving credit facility was set at 0.20%. Under the Credit Facility, the ratio of third-party borrowings to trailing twelve months Adjusted EBITDA cannot exceed 3.0x, and the interest coverage ratio must not be less than 4.0x.
At June 30, 2018 the outstanding balance of the facility was $0.0 million ($350.0 million of undrawn revolving credit facility capacity). The Company’s ratio of third-party borrowings to trailing twelve months Adjusted EBITDA was 1.3x and interest coverage ratio was 12.1x which includes $393.0 million of long-term bonds, and per the terms of the revolving credit facility excludes non-recourse debt (see below).
At December 31, 2017 the outstanding balance of the facility was $0.0 million ($350.0 million of undrawn revolving credit facility capacity). Including $392.8 million of long-term bonds (see below), the Company’s ratio of third-party borrowings to trailing twelve months Adjusted EBITDA was 1.4x and interest coverage ratio was 11.5x.
Non-recourse seed capital facility
In July 2017, the Company purchased all remaining seed capital investments covered by the Seed Capital Management Agreement from OM plc for $63.4 million. BSIG financed this purchase in part through borrowings under a non-recourse seed capital facility collateralized entirely by its seed capital holdings. The Company entered into this facility as of July 17, 2017 and may borrow up to $65.0 million, so long as the borrowing does not represent more than 50% of the value of the permitted seed capital collateral. The non-recourse seed facility bears interest at LIBOR +1.55% with a commitment fee on the unused portion of this facility of 0.95%. The facility currently has a maturity date of January 17, 2019 and includes a six-month evergreen renewal option. At June 30, 2018, and December 31, 2017, amounts outstanding under this non-recourse seed capital facility amounted to $15.0 million and $33.5 million, respectively. Per the terms of the Company’s Credit Facility, drawdowns under this facility are excluded from the Company’s third party debt levels for purposes of calculating the Company’s credit ratio covenants. The fair value of borrowings on the non-recourse seed capital facility approximated the net cost basis as of June 30, 2018 and December 31, 2017.
Long-term bonds
The Company’s long-term bonds were comprised of the following as of the dates indicated (in millions): 
 
 
June 30, 2018
 
December 31, 2017
Long-term bonds:
 
Maturity amount
 
Discount and issuance costs
 
Carrying value
 
Fair Value
 
Carrying value
 
Fair Value
4.80% Senior Notes Due 2026
 
$
275.0

 
$
(3.0
)
 
$
272.0

 
$
269.3

 
$
271.9

 
$
285.7

5.125% Senior Notes Due 2031
 
125.0

 
(4.0
)
 
121.0

 
117.2

 
120.9

 
124.6

Total long-term bonds
 
$
400.0

 
$
(7.0
)
 
$
393.0

 
$
386.5

 
$
392.8

 
$
410.3


In July 2016, the Company issued $275.0 million of 4.80% Senior Notes due 2026 (the “2026 Notes”) and $125.0 million of 5.125% Senior Notes due 2031 (the “2031 Notes”). The Company used the net proceeds of these offerings to finance the acquisition of Landmark in August 2016, settle an outstanding interest rate lock, purchase seed capital from OM plc and pay down the balance of the Credit Facility.
4.80% Senior Notes Due July 2026
The $275.0 million 2026 Notes were sold at a discount of $(0.5) million and the Company incurred debt issuance costs of $(3.0) million, which are being amortized to interest expense over the ten-year term. The 2026 Notes can be redeemed at any time prior to the scheduled maturity in part or in aggregate, at the greater of 100% of the principal amount at that time or the sum of the remaining scheduled payments discounted at the treasury rate (as defined) plus 0.5%, together with any related accrued and unpaid interest.
5.125% Senior Notes Due August 2031
The $125.0 million 2031 Notes incurred debt issuance costs of $(4.3) million, which are being amortized to interest expense over the fifteen-year term. The 2031 Notes can be redeemed at any time, on or after August 1, 2019 at a redemption price equal to 100% of the principal amount together with any related accrued and unpaid interest.
Interest expense
Interest expense incurred amounted to a total of $6.1 million and $5.9 million for the three months ended June 30, 2018 and 2017, respectively. Interest expense incurred amounted to a total of $12.4 million and $11.8 million for the six months ended June 30, 2018 and 2017, respectively. Interest expense consists of interest accrued on the long-term debt and lines of credit, commitment fees and amortization of debt-related costs.
v3.10.0.1
Commitments and Contingencies
6 Months Ended
Jun. 30, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
Operational commitments
The Company had unfunded commitments to invest up to approximately $60 million in co-investments with its Affiliates as of June 30, 2018. These commitments will be funded as required through the end of the respective investment periods ranging through 2022.
Certain Affiliates operate under regulatory authorities that require that they maintain minimum financial or capital requirements. Management is not aware of any violations of such financial requirements occurring during the period.
Litigation
The Company and its Affiliates are subject to claims, legal proceedings and other contingencies in the ordinary course of their business activities. Each of these matters is subject to various uncertainties, and it is possible that some of these matters may be resolved in a manner unfavorable to the Company or its Affiliates. The Company and its Affiliates establish accruals for matters for which the outcome is probable and can be reasonably estimated. If an insurance claim or other indemnification for a litigation accrual is available to the Company, the associated gain will not be recognized until all contingencies related to the gain have been resolved. As of June 30, 2018, there were no material accruals for claims, legal proceedings or other contingencies.
Indemnifications
In the normal course of business, such as through agreements to enter into business combinations and divestitures of Affiliates, the Company enters into contracts that contain a variety of representations and warranties and which provide general indemnifications. The Company’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred.
Foreign tax contingency
The Company has clients in non-U.S. jurisdictions which require entities that are conducting certain business activities in such jurisdictions to collect and remit tax assessed on certain fees paid for goods and services provided. The Company does not believe this requirement is applicable based on its limited business activities in these jurisdictions. However, given the fact that uncertainty exists around the requirement, the Company has chosen to evaluate its potential exposure related to non-collection and remittance of these taxes. At June 30, 2018, management of the Company has estimated the potential maximum exposure and concluded that it is not material. No accrual for the potential exposure has been recorded as the probability of incurring any potential liability relating to this exposure is not probable at June 30, 2018.
Considerations of credit risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash investments. The Company maintains cash and cash equivalents and short term investments with various financial institutions. These financial institutions are typically located in cities in which the Company and its Affiliates operate. For the Company and certain Affiliates, cash deposits at a financial institution may exceed Federal Deposit Insurance Corporation insurance limits.
v3.10.0.1
Earnings Per Share
6 Months Ended
Jun. 30, 2018
Earnings Per Share [Abstract]  
Earnings Per Share
Basic earnings per share is calculated by dividing net income attributable to controlling interests by the weighted-average number of shares outstanding. Diluted earnings per share is similar to basic earnings per share, but is adjusted for the effect of potentially issuable ordinary shares, except when inclusion is antidilutive. 
The calculation of basic and diluted earnings per ordinary share is as follows (dollars in millions, except per share data):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Numerator:
 

 
 

 
 

 
 

Net income attributable to controlling interests
$
2.1

 
$
12.9

 
$
59.4

 
$
34.3

Less: Total income available to participating unvested securities(1)

 
(0.1
)
 
(0.2
)
 
(0.2
)
Total net income attributable to ordinary shares
$
2.1

 
$
12.8

 
$
59.2

 
$
34.1

Denominator:
 

 
 

 
 

 
 

Weighted-average ordinary shares outstanding—basic
108,445,541

 
111,342,172

 
108,918,328

 
112,404,797

Potential ordinary shares:
 
 
 
 
 
 
 
Restricted stock units
175,580

 
502,847

 
185,919

 
690,052

Weighted-average ordinary shares outstanding—diluted
108,621,121

 
111,845,019

 
109,104,247

 
113,094,849

Earnings per ordinary share attributable to controlling interests:
 

 
 

 
 

 
 

Basic
$
0.02

 
$
0.12

 
$
0.54

 
$
0.30

Diluted
$
0.02

 
$
0.11

 
$
0.54

 
$
0.30

 
 
(1)
Income available to participating unvested securities includes dividends paid on unvested restricted shares and their proportionate share of undistributed earnings.
v3.10.0.1
Revenue
6 Months Ended
Jun. 30, 2018
Revenue from Contract with Customer [Abstract]  
Revenue
On January 1, 2018, the Company adopted ASC 606 using the modified retrospective method. Results for periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with historic accounting. The implementation of the new standard had no material impact on the measurement or timing of revenue recognition in prior periods and therefore no cumulative impact adjustment was necessary to the Company’s opening retained earnings as of January 1, 2018. The greatest area of impact in implementing the standard has been related to the accounting for certain pass-through costs on a gross basis.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of the Company’s contracts have a single performance obligation, as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct. The Company’s management fee revenue is calculated based upon levels of assets under management multiplied by a fee rate. Management fee revenue is typically calculated on a monthly or quarterly basis, but is earned continuously as performance obligations are fulfilled. The transaction price is variable in contracts which calculate AUM on an average basis over a specified period and this variability is resolved at the end of the period, when the actual average AUM for the contract period may be calculated. The Company is able to resolve the variability and calculate the most likely amount to be recognized for any given period by estimating revenue based upon a daily average AUM.
All of the Company’s performance obligations are satisfied ratably over time and there is no distinction in the methodology used to recognize management fee revenue in instances where there is more than one performance obligation. Typically, revenue is recognized over time using a time-based output measure to measure progress.
Cost of acquiring and fulfilling a contract
The Company is required to capitalize certain costs directly related to the acquisition or fulfillment of a contract with a customer. The Company has noted no instances where sales-based compensation or similar costs met the definition of an incremental cost to acquire a contract with a customer under ASC 606. There are no instances where the Company has incurred costs to fulfill a contract with a customer, therefore no intangible assets related to contract acquisition or fulfillment have been recognized.
Categories of revenue
Management fees
The Company’s management fees are a function of the fee rates the Affiliates charge to their clients, which are typically expressed in basis points, and the levels of the Company’s assets under management. The greatest driver of increases or decreases in this average fee rate is changes in the mix of our assets under management caused by net inflows or outflows in certain asset classes or disproportionate market movements.
Performance fees
The Company’s alternative products subject to performance fees or carried interest earn these performance fees upon exceeding high-water mark performance thresholds or outperforming a hurdle rate. Conversely, the separate accounts/other products, which primarily earn management fees, are potentially subject to performance adjustment up or down based on investment performance versus benchmark.     
Other revenue
Included in other revenue are certain payroll and benefits costs and expenses paid on behalf of Funds by the Company’s Affiliates. In instances where a customer reimburses the Company for a cost paid on the customer’s behalf, the Company is acting as a principal and the reimbursement is accrued on a gross basis at cost as the corresponding reimbursable expenses are incurred. Revenue from expense reimbursement amounted to $2.7 million for the three months ended June 30, 2018 and $5.0 million for the six months ended June 30, 2018 and is recorded in other revenue in the Company’s Condensed Consolidated Statements of Operations. Other revenue may also consist of other miscellaneous revenue, consisting primarily of consulting services.
Disaggregation of management fee revenue
The Company’s revenue by asset class (including only consolidated Affiliates that are included in management fee revenue) for the three and six months ended June 30, 2018 and 2017 were ($ in millions):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
U.S. equity
$
45.5

 
$
48.1

 
$
93.1

 
$
97.7

Global/non-U.S. equity
126.2

 
114.1

 
254.8

 
217.8

Fixed income
6.8

 
6.8

 
13.6

 
13.9

Alternatives
47.9

 
37.7

 
109.9

 
73.0

Management fee revenue
$
226.4

 
$
206.7

 
$
471.4

 
$
402.4

v3.10.0.1
Accumulated Other Comprehensive Income
6 Months Ended
Jun. 30, 2018
Equity [Abstract]  
Accumulated Other Comprehensive Income
The following tables show the tax effects allocated to each component of other comprehensive income (loss) ($ in millions):
 
For the six months ended June 30, 2018
 
Pre-Tax
 
Tax
(Expense)
 
Net of Tax
Foreign currency translation adjustment
$
(0.8
)
 
$

 
$
(0.8
)
Amortization related to derivatives securities
1.4

 
(0.2
)
 
1.2

Other comprehensive income (loss)
$
0.6

 
$
(0.2
)
 
$
0.4

 
For the six months ended June 30, 2017
 
Pre-Tax
 
Tax
(Expense)
 
Net of Tax
Foreign currency translation adjustment
$
1.7

 
$

 
$
1.7

Amortization related to derivatives securities
1.3

 
(0.6
)
 
0.7

Other comprehensive income (loss)
$
3.0

 
$
(0.6
)
 
$
2.4

The components of accumulated other comprehensive income (loss) for the six months ended June 30, 2018 were as follows (in millions):
 
Foreign currency translation adjustment
 
Valuation of derivative securities
 
Total
Balance, as of December 31, 2017
$
3.5

 
$
(25.1
)
 
$
(21.6
)
Other comprehensive income
(0.8
)
 
1.2

 
0.4

Balance, as of June 30, 2018
$
2.7

 
$
(23.9
)
 
$
(21.2
)

The Company reclassified $1.4 million and $1.3 million from accumulated other comprehensive income (loss) to interest expense on the Condensed Consolidated Statements of Income for the six months ended June 30, 2018 and 2017, respectively.
v3.10.0.1
Derivatives and Hedging
6 Months Ended
Jun. 30, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives and Hedging
Cash flow hedge
In July 2015, the Company entered into a series of $300 million notional Treasury rate lock contracts which were designated and qualified as cash flow hedges. The Company documented its hedging strategy and risk management objective for this contract in anticipation of a future debt issuance. The Treasury rate lock contract eliminated the impact of fluctuations in the underlying benchmark interest rate for future forecasted debt issuances. The forecasted debt issuances occurred in July 2016 and the Treasury rate lock, which had an accumulated fair value of $(34.4) million, was settled. Refer to Note 7, Borrowings and Debt, for additional information on the debt issuances.
As of June 30, 2018, the balance recorded in accumulated other comprehensive income (loss) was $(23.9) million, net of tax. This balance will be reclassified to earnings through interest expense over the life of the issued debt. Amounts of $0.7 million and $0.7 million have been reclassified for the three months ended June 30, 2018 and 2017, respectively, and amounts of $1.4 million and $1.3 million have been reclassified for the six months ended June 30, 2018 and 2017, respectively. During the next twelve months the Company expects to reclassify approximately $2.9 million to interest expense.
Derivatives of consolidated Funds
In the normal course of business, the Company’s consolidated Funds may enter into transactions involving derivative financial instruments in connection with Funds’ investing activities. Derivative instruments may be used as substitutes for securities in which the Funds can invest, to hedge portfolio investments or to generate income or gain to the Funds. The Funds may also use derivatives to manage duration; sector and yield curve exposures and credit and spread volatility. Derivative financial instruments base their value upon an underlying asset, index or reference rate. These instruments are subject to various risks, including leverage, market, credit, liquidity and operational risks. The Funds manage the risks associated with derivatives on an aggregate basis, along with the risks associated with its trading and as part of its overall risk management policies.
v3.10.0.1
Discontinued Operations and Restructuring
6 Months Ended
Jun. 30, 2018
Discontinued Operations and Disposal Groups [Abstract]  
Discontinued Operations and Restructuring
All of the Company’s discontinued operations were wound down or transferred to OM plc prior to 2016.
The Company recognized a gain on disposal, net of taxes, of 0.0 million and 0.0 million, with basic and diluted discontinued operations earnings per share of $0.00 and $0.00 for the three months ended June 30, 2018 and 2017, respectively.
The Company recognized a gain (loss) on disposal, net of taxes, of $0.0 million and $(0.1) million, with both basic and diluted discontinued operations earnings per share of $0.00 and $0.00 for the six months ended June 30, 2018 and 2017, respectively. Gains and losses on disposal of discontinued operations represent the Company’s rights or obligations related to contractual residual interests in previously discontinued operations.
v3.10.0.1
Basis of Presentation and Significant Accounting Policies (Policies)
6 Months Ended
Jun. 30, 2018
Accounting Policies [Abstract]  
Basis of presentation
Basis of presentation
These unaudited Condensed Consolidated Financial Statements reflect the historical balance sheets, statements of operations and of comprehensive income, statements of changes in shareholders’ equity and statements of cash flows of the Company.
The Condensed Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). All dollar amounts, except per-share data in the text and tables herein, are stated in millions unless otherwise indicated. Material intercompany balances and transactions among the Company and its consolidated Affiliates are eliminated in consolidation.
These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto for the year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on February 28, 2018. The Company’s significant accounting policies, which have been consistently applied, are summarized in those Financial Statements.
Revenue recognition
Revenue recognition
Revenue from contracts with customers
In the first quarter of 2018, the Company adopted the provisions of Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers,” (“ASC 606”), using the modified retrospective method applied to all contracts. Under ASC 606, the Company recognizes revenue when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. The Company applied the five step method outlined in the ASC 606 to all revenue streams.
The Company’s consolidated revenue recorded pursuant to ASC 606 is recognized over time and primarily consists of management fees, performance fees and certain reimbursement of costs from funds. Management fees are typically billed monthly or quarterly by Affiliates for managing the assets of clients.
Management fees are recognized monthly as services are rendered and are primarily based upon a percentage of the market value of client assets managed. Affiliates that manage tangible property may also earn transaction fees at the time the underlying property is bought and sold. Any fees collected in advance are deferred and recognized as income over the period earned. Dividend income received is recorded on the ex-dividend date.
Performance fees are generally assessed as a percentage of the investment performance realized on a client’s account. Additionally, separate accounts or other products which primarily earn management fees are potentially subject to performance adjustment up or down based on investment performance versus benchmark. Performance fees, including those that are subject to clawback are recognized when they (i) become billable to customers (based on contractual terms of agreements), (ii) are not subject to contingent repayment and (iii) when collection is reasonably assured.
For each one of its contracts with customers, the Company identifies one or more performance obligations within the contract and then, for each performance obligation, determines if it is a principal (where the nature of its promise is to provide a specified good or service itself) or an agent (where the nature of its promise is to arrange for a good or service to be provided by another party). In instances where a customer reimburses the Company for a cost paid on the customer’s behalf, if the Company is acting as a principal, the reimbursement is recorded on a gross basis and if the Company is acting as an agent, the reimbursement is recorded on a net basis.
Certain Funds reimburse the Company’s Affiliates for certain expenses where the Affiliate is acting as a principal, primarily for compensation expense for field office personnel at several Timber Funds (as defined below). Revenue from expense reimbursement is accrued at cost as the corresponding reimbursable expenses are incurred and is recorded in other income in the Company’s Condensed Consolidated Statements of Operations.
Revenue from other sources
Other income and revenues also includes interest income on cash and cash equivalents of Funds and revenue from marketing, distribution and consulting services.
The revenue of consolidated Funds that invest in Timber (the “Timber Funds”) is recognized from log and fiber sales upon delivery to the customer. The Company is typically responsible for all logging and hauling costs. However, under pay-as-cut timber contracts, title and risk of loss from stumpage sales transfer to the buyer as the trees are cut. Revenue is recognized as timber is harvested. The buyer is typically responsible for all logging and hauling costs.
Valuation of investments held at cost
In the first quarter of 2018, the Company adopted the provisions of Accounting Standards Update (“ASU”) 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” (“ASU 2016-01”). In adopting ASU 2016-01, the Company changed the methodology in how it records investments in unconsolidated Timber Funds, from historical cost less depletion to fair value, based upon the Company’s proportionate share of the underlying net asset value.
Compensation arrangements
The Company operates short term variable compensation arrangements where generally, a percentage of each Affiliate’s annual pre-variable compensation earnings, as defined in each arrangement, is allocated to a “pool” of each respective Affiliate’s key employees, and subsequently distributed to individuals subject to recommendation and approval of a remuneration committee comprised of both the Company’s and each respective Affiliate’s management. Variable compensation expense is accrued and recognized in the Consolidated Statements of Operations as services are provided by individual employees.
The Company operates longer term profit-interest plans whereby certain Affiliate key employees are granted (or have a right to purchase) awards representing a profits interest in their respective Affiliate, as distinct from an equity interest due to the lack of pari passu voting rights. Under these plans, the Company may award a portion of the aforementioned variable compensation arrangement through issuance of a profits interest in the Affiliate. The awards generally have a three- to five-year vesting period from the grant date, and the service period begins at the commencement of the financial period to which the variable compensation relates. Under these plans, Affiliate key employees are eligible to share in the profits of their respective Affiliates based on their respective percentage interest held.
In addition, under certain circumstances, Affiliate key employees are eligible to receive a series of repurchase payments upon exiting the plans based on a multiple of the last twelve months profits of their respective Affiliate, as defined. Profits allocated and movements in the potential repurchase value, determined based on a fixed multiple times trailing twelve month profits, as defined, are recognized as compensation expense. Profit interests compensation liabilities are re-measured at each reporting date at the current trailing twelve month earnings multiple, with movements treated as compensation expense in the Company’s Condensed Consolidated Statements of Operations.
Share-based compensation plans
Share-based compensation plans
The Company recognizes the cost of all share-based payments to directors, senior management and employees, including grants of restricted stock, as compensation expense in the Condensed Consolidated Statements of Operations over the respective vesting periods.
Awards made under the Company’s equity plans are accounted for as equity settled, and the grant date fair value is recognized as compensation expense over the requisite service period, with a corresponding contribution to capital recorded. Valuation of restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) is determined based on the Company’s closing share price as quoted on the New York Stock Exchange on the measurement date. For performance-based awards, a Monte-Carlo simulation model is used to determine the fair value. Key inputs for the model include: assumed reinvestment of dividends, risk-free interest rate and expected volatility. All excess tax benefits and deficiencies on share-based payment awards are recognized as income tax expense or benefit in the Condensed Consolidated Statements of Operations. In addition, the tax effects of exercised or vested awards are treated as discrete items in the reporting period in which they occur and excess tax benefits or deficiencies are classified with other income tax cash flows as an operating activity in the Condensed Consolidated Statement of Cash Flows. The Company recognizes forfeitures as they occur.
Awards of equity made to Affiliate key employees are accounted for as cash settled, with the fair value recognized as compensation expense over the requisite service period, with a corresponding liability carried within other compensation liabilities on the Condensed Consolidated Balance Sheet until the award is settled by the Company. The fair value of the liability is based on the expected cash to be paid. The liability is revalued at each reporting period, with any movements recorded within compensation expense.
Consolidation
Consolidation
Affiliates
The Company evaluates each of its Affiliates and other operating entities to determine the appropriate method of accounting. Generally, majority-owned entities or otherwise controlled investments in which the Company holds a controlling financial interest as the principal shareholder, managing member, or general partner are consolidated.
Funds
In the normal course of business, the Company’s Affiliates sponsor and manage certain investment vehicles (the “Funds”). The Company assesses consolidation requirements with respect to its Funds pursuant to ASC Topic 810, “Consolidation,” (“ASC 810”).
In evaluating whether or not a legal entity must be consolidated, the Company determines if such entity is a variable interest entity (“VIE”) or a voting interest entity (“VOE”). A VOE is considered an entity in which (i) the total equity investment at risk is sufficient to enable the entity to finance its activities independently and (ii) the equity holders at risk have the obligation to absorb losses, the right to receive residual returns, and the right to direct the activities of the entity that most significantly impact the entity’s economic performance. A VIE is an entity that lacks one or more of the characteristics of a VOE. Assessing whether an entity is a VIE or VOE involves judgment and analysis. Factors considered in this assessment include the entity’s legal organization, the entity’s capital structure and equity ownership and any related party or de facto agent implications of the Company’s involvement with the entity. Investments that are determined to be VIEs are consolidated if the Company or a consolidated Affiliate is the primary beneficiary of the investment. VOEs are typically consolidated if the Company holds the majority voting interest or otherwise controls the entity.
In evaluating whether the Company is the primary beneficiary, the Company evaluates its economic interests in the entity held either directly by the Company or indirectly through related parties. The primary beneficiary of the VIE is defined as the variable interest holder that has a controlling financial interest. A controlling financial interest is defined as (i) the power to direct the activities of the VIE that most significantly impacts its economic performance and (ii) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. If no single party satisfies both criteria, but the Company and its related parties satisfy the criteria on a combined basis, then the primary beneficiary is the entity out of the related party group that is most closely associated to the VIE. The consolidation analysis can generally be performed qualitatively, however, if it is not readily apparent that the Company is not the primary beneficiary, a quantitative analysis may also be performed. The Company generally is not the primary beneficiary of Fund VIEs created to manage assets for clients unless the Company’s ownership interest in the fund, including interests of related parties, is substantial.
The Company consolidates VOEs when it has control over significant operating, financial and investing decisions of the entity or holds the majority voting interest.
Upon the occurrence of certain events (such as contributions and redemptions, either by the Company, its Affiliates, or third parties, or amendments to the governing documents of the Company’s investees or sponsored Funds) management reviews and reconsiders its previous conclusion regarding the status of an entity as a VIE or a VOE. Additionally, management continually reconsiders whether the Company is deemed to be a VIE’s primary beneficiary who consolidates such entity.
Goodwill and intangible assets
Goodwill and intangible assets
In the second quarter of 2018, the Company adopted ASU 2017-04, “Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). Under ASU 2017-04, a goodwill impairment will now be calculated as the amount by which a reporting unit’s carrying value exceeds its fair value. Pursuant to the standard, the Company will apply ASU 2017-04 prospectively as future goodwill impairment tests are performed.
Use of Estimates
Use of Estimates
The preparation of these Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ significantly from those estimates.
v3.10.0.1
Investment (Tables)
6 Months Ended
Jun. 30, 2018
Investments [Abstract]  
Schedule Of Investment Components
Investments are comprised of the following as of the dates indicated (in millions):
 
June 30,
2018
 
December 31,
2017
Investments of consolidated Funds held at fair value
$
100.3

 
$
136.7

Other investments held at fair value(1)
101.3

 
87.4

Investments related to long-term incentive compensation plans held at fair value